From IBTimesFX:
:: Australian Dollar: The Aussie sold off in Asia yesterday following some weaker than expected Japanese data and general risk aversion. After opening the session above the 87 cent handle support gave way in afternoon exchange with the AUD/USD entering offshore on its lows at 0.8625. Fear that some European banks may have to roll over debt obligations with the ECB increased perceived risk on equities, commodities and the AUD with the local currency collapsing quickly to exchange below 85 cents to open this morning at 0.8480. The AUD/USD is likely to be sensitive to any negative news with today’s HIA New Home Sales data to come under the microscope more than what it would normally in light of current market conditions.
- We expect a range today in the AUD/USD rate of 0.8420 to 0.8520
:: Great Britain Pound: In what can be considered a strong performance overnight the Cable held relatively firm to open this morning relatively unchanged from yesterday’s Asian close at 1.5060. Despite a massive move into the Greenback against most majors Pound Sterling stuck solid with some support coming from stronger than expected lending and credit data released overnight. It will be interesting to see if it can remain supported over the next 24 hours with several key U.K and European releases expected to have the important 1.5 level tested at some point. A massive drop in the Australian dollar overnight sees the GBP/AUD cross rate open substantially higher at 1.775 this morning, 2.5% higher than the same time yesterday.
- We expect a range today in the GBP/AUD rate of 1.7625 to 1.7800
:: New Zealand Dollar: A large 9.6% drop in N.Z Building permits during the month of May instigated some early morning selling in the Kiwi dollar yesterday, a move that was exacerbated by negative sentiment in Japan, Europe and the U.S. After exchanging around 0.7080 prior to the announcement the NZD/USD opens this morning at 0.6920 with concerns about European debt and U.S Consumer Confidence triggering some large selling. Despite the move lower on NZD/USD the Kiwi dollar strengthened against the Aussie dollar putting the AUD/NZD cross rate lower this morning at 1.2250.
- We expect a range today in the NZD/USD rate of 0.6885 to 0.6985
:: Majors: Japanese economic data released yesterday disappointed the market with the unemployment rate increasing to 5.2% and Industrial Production falling 0.1% compared to the previous months 1.3% rise. On a positive note however the job to applicant ratio increased indicating there was an increase in positions available hence strengthening the JPY against the USD in local trade to finish in Asia at 88.80. EUR/USD was sold off during European trade as the July 1 deadline for bank loan repayments to the ECB, a total of 442 billion EUR, looms near. With the market nervous that some banks may not be in a position to repay and will ask for loans to be rolled over risk aversion drove the Euro and “riskier assets” lower. The flight to safety saw EUR/USD hit a low of 1.2150 and USD/JPY 88.25 before both bounced back slightly during the North American afternoon to open this morning in Asia at 1.2180 and 88.55 respectively. Adding to the fears was a much lower than forecast U.S consumer confidence reading with the sentiment survey dropping from 62.7 to 52.9 in June, well below economist forecasts for only a moderate adjustment to 62.5. With U.S consumers less confident about the outlook for employment and wages the Dow Jones Industrial Average closed down 2.65% after having at one stage being 3.3% in the red. Heading into this evenings ECB announcement currency markets will remain volatile with 1.2150 support on EUR/USD likely to be tested once again.
:: Data Releases:
AUD: May HIA New Home Sales, Jun DEWR Skilled Vacancies & May Private Sector Credit
NZD: No Data Expected Today
USD: Jun ADP Employment Change, Jun Chicago PMI & Fedspeak
GBP: Jun GfK Consumer Confidence, Jun Nationwide House Prices, & Q1 GDP
EUR: Jun German Unemployment Change, Jun Eurozone CPI Estimate & Trichet Speach
JPY: May Housing Starts & May Construction Orders
By Bradley Davis Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–The dollar and yen posted broad gains Tuesday as investors shunned assets closely tied to growth after disappointing economic data led to concern the global recovery could be losing steam.
The safe-haven yen benefited most from investors unwinding bets on higher-yielding assets, with the euro plummeting to its lowest level against the Japanese currency since November 2001. Investors also ditched the Australian and New Zealand dollars, whose commodity-backed economies are closely tied to global growth. Both dropped more than 2% against the greenback.
“Fear, fear and more fear has driven” investors out of riskier assets, said Dan Cook, senior market analyst at IG Markets in Chicago.
News that an indicator of Chinese growth was not as strong as originally reported sparked initial worry over global growth prospects after a private group issued a correction to its data. A steep decline in U.S. consumer confidence kept investor sentiment poor.
“The latest string of data that we’ve seen out of most major economies, particularly in the U.S., has pointed to a notable loss of momentum in the recovery,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. That has benefited the dollar, yen and Swiss franc, which soared Tuesday to a record high against the euro.
Late Tuesday, the euro was at $1.2196 from $1.2276 late Monday, according to EBS via CQG. The dollar was at Y88.54 from Y89.41, while the euro was at Y107.97 from Y109.78. The U.K. pound was at $1.5074 from $1.5105. The dollar was at CHF1.0808 from CHF1.0872.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 86.105 from 85.701.
To see the euro’s performance against the yen, please see:
http://dowjoneswebservices.com/chart/view/4197
The flight to safety was reflected across markets, with 10-year U.S. Treasury yields dropping below 3% to the lowest level since April 2009 and stocks slumping. The Dow Jones Industrial Average was down more than 2.5% by late afternoon.
The global flight to safety began with a correction to the Conference Board’s leading economic indicator for China. The private research group said Chinese leading indicator rose only 0.3% in April, correcting a previous reading of a 1.7% increase, and a sharp slowdown from March’s 1.2% rise.
A sharp drop in U.S. consumer confidence in June exacerbated the shift into safe assets. Consumer concerns over the sustainability of economic recovery and the outlook for jobs brought the closely watched indicator’s three-month streak of consecutive gains to an end.
Investors also worried that the euro-zone sovereign debt crisis could spill into the region’s financial sector as the Thursday deadline approached for banks to repay EUR442 billion in 12-month funding. Analysts expect most of the money to be borrowed again through the ECB’s one-week and three-month windows.
As the banks roll over the financing from a one-year term to shorter terms, “the cost these banks pay may add additional stress to the system, and this has investors very nervous,” Cook said.
Souring investor sentiment extended the Swiss franc’s record-breaking rally Tuesday, with the euro sinking below CHF1.32, its lowest level in history.
The euro fell to a low of CHF1.3171, according to EBS via CQG, in a continuation of a recent trend that has brought record lows on an almost daily basis. The Swiss currency has benefited for months from a pickup in growth in Switzerland and the country’s healthy fiscal position, but the move has accelerated since the Swiss National Bank stopped intervening to halt the franc’s rise. The euro has declined by around 10% against the franc since the start of this year.
With the ICE Dollar Index strengthening, Deutsche Bank’s PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.44% from late Monday, while its PowerShares U.S. Dollar Index Bullish was up 0.48%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE’s Dollar Index.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com
(Katie Martin, Don Curren and Geoffrey T. Smith contributed to this article.)
Germany and France are examining ways of creating a “two-tier” euro system to separate stronger northern European countries from weaker southern states.
By Alex Spillius in Washington and Bruno Waterfield in Brussels
Published: 7:00AM BST 19 Jun 2010
A European official has told The Daily Telegraph the dramatic option was being examined at cabinet level.
Senior politicians believe their economies need to be better protected as they could not cope with another crisis on a par the one in Greece.
The creation of a “super-euro” zone would initially include France, Germany, Holland, Austria, Denmark and Finland.
The likes of Greece, Spain, Italy, Portugal and even Ireland would be left in a larger rump mostly Mediterranean grouping.
The official said French and German officials had first spent months examining how to exclude poor-performing states from the euro but decided it was not feasible.
A two-tier monetary system in the 16-member euro zone is being examined as a “plan B”.
“The philosophy is the stronger countries might need to move away from countries they can’t afford to bail-out,” said the official. “As a way of containing the damage, they may have to do something dramatic, though obviously in the short term implementation is difficult.
“It’s an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can’t afford to let fail or bail-out.
“And putting more pressure on the people of France and Germany to save other countries is politically unfeasible.”
One option, to protect the wealthier northern European countries and to help indebted southern Europeans, would be for Germany to lead a group of countries out of the existing euro into a new single currency alongside the old.
The old euro would decline sharply against the new German and French dominated currency but both north and southern Europeans would be protected.
Northern economies would be protected from debt contagion and southern countries would be spared the horrors of being thrown out and forced to go it alone.
Angela Merkel, the German Chancellor, has already paid a political price for forcing the rescue plan on a reluctant public, losing her majority in the upper house of parliament in a recent election.
The official pointed out that France held lent £500 billion to Spain and the Germans had lent £335 billion.
Nicolas Sarkozy, the French president, is understood to have been initially cool on the idea but has grown so frustrated with Greece and now Spain that he has allowed officials to explore proposals.
“He would prefer to keep the euro in place but if Spain, Italy and Greece are dragging him down he accepts he may have to cut them loose,” said the official. “They are trying to contain the contagious effect but they don’t have a solution yet.”
The crunch time will come in September, when Spain has to refinance £67 billion of its foreign debt.
“If the markets don’t buy that will trigger a response by Germany and France,” said the official.
Expelling a country from the euro could push the whole region into a slump because European banks are so exposed to debt in southern Europe. The consequences for the exiting country would be even more catastrophic.
“The euro zone debt crisis has a long way to run,” said one senior EU negotiator. “No one knows where it is going to end up. Only one thing is sure, the euro zone will change.”
By Frances McInnis Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–The dollar rose against the euro Tuesday as optimism over possible appreciation of the Chinese yuan faded and worries over the health of Europe’s financial sector kept market sentiment muted.
The pound rallied against the dollar after Fitch Ratings weighed in favorably on the U.K. government’s austerity budget, released earlier Tuesday.
Investors are cautious ahead of Wednesday’s Federal Open Market Committee rate announcement, analysts said. Even though ultra-low rates aren’t expected to change, the Fed’s statement will be scrutinized for any clues as to when monetary policy might tighten.
“The markets are just waiting and biding their time,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York. “Investors are waiting to see what is said, then they’ll react,” keeping most currencies in a tight range, he added.
Early Tuesday afternoon, the euro was at $1.2304 from $1.2320 late Monday, according to EBS via CQG. The dollar was at Y90.58 from Y91.04, while the euro was at Y111.46 from Y112.15. The U.K. pound was at $1.4848 from 1.4754. The dollar was at CHF1.1071 from CHF1.1050.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 85.887 from 85.953.
Fitch called the U.K. budget a “strong statement of intent.” The U.K. pound gained to its strongest level of the day against the dollar after Fitch delivered its statement, which said the budget could strengthen confidence in the country’s AAA status.
However, uncertainty about the direction of the yuan kept the overriding tone cautious. The People’s Bank of China set the dollar-yuan central parity rate at 6.7980 earlier Tuesday, down from 6.8275 Monday, marking the largest single-day change in recent history. The yuan, however, actually weakened in subsequent trading, damping some market expectations for a steady march higher for the yuan.
“The revaluation of the Chinese yuan appears to have come in with a bang and certainly its impact is limping out with a whimper,” said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn.
By allowing the yuan to fall on Tuesday unexpectedly against the dollar, China’s central bank appeared to be trying to temper expectations that the Chinese currency is bound to rise, conveying the message that currency-policy reform doesn’t mean one-way bets are a sure thing. Traders said the day’s moves added to uncertainty over the pace and extent of any yuan appreciation in the months ahead.
The uncertainty tended to benefit the dollar and yen over the euro as they function as safe-haven currencies whenever doubt makes traders wary.
Worse-than-expected U.S. existing-home-sales data for May and sinking U.S. equities also tended to drive investors to the perceived safety of the dollar and yen.
Fresh worries over the euro-zone sovereign-debt crisis, and the possibility it will infect the region’s banking system, also dragged down investor sentiment after Monday’s downgrade by Fitch Ratings of French banking giant BNP Paribas.
The euro dropped to fresh record lows against the Swiss franc, where it continued to trade in New York afternoon hours, as investors file into the Swiss currency based on solidly improving Swiss fundamentals and flee the euro over the sovereign-debt worries.
The euro was at CHF1.3594 from CHF1.3695 late Monday after dropping as low as CHF1.3588.
The Swiss currency’s long-running rally has accelerated of late, after the Swiss National Bank last week stepped back from its policy of seeking to hold it down–a stance it reiterated Monday.
-By Frances McInnis, Dow Jones Newswires; 212-416-3417; frances.mcinnis@dowjones.com
(Bradley Davis in New York, Takashi Mochizuki in Tokyo and Katie Martin in London contributed to this article.)
* Mixed trading as yen rises, but commodities gain
* Yuan makes minimal headway after China pledge
* Swiss franc extends gains, hits all-time high vs euro
* Sterling volatile, then higher on UK budget (Recasts, updates prices, adds quote, byline)
NEW YORK, June 22 (Reuters) – The U.S. dollar and euro fell against the yen on Tuesday as investors turned risk-averse amid persistent doubts about China’s move to make the yuan flexible and renewed worries about European banks’ funding needs.
The Chinese yuan declined against the dollar given heavy buying of the greenback by state-owned banks, which indicated the People’s Bank of China was using new strategies to fuel two-way trades and limit the Asian currency’s gains. See [ID:nTOE65L07G].
“Dollar/yen is still reeling from the whole China story. I think the market hasn’t figured out yet how much China will let the yuan appreciate,” said Steven Butler, director of FX trading at Scotia Capital in New York.
China said on Monday it will allow the yuan to appreciate gradually, ruling out a one-off revaluation. Analysts said a modest yuan appreciation would do little to significantly reduce China’s huge trade imbalance with the United States.
Some investors saw less of a boost to the world economy from China’s yuan move than previously expected.
“Overall, I think there is still some risk aversion in the market, which has caused a bit of yen buying.”
In early afternoon trading, the dollar was down 0.5 percent versus the yen to 90.59 JPY=, while the euro dropped 0.5 percent as well at 111.42 yen EURJPY= but was little changed against the dollar at $1.2303.
The single euro zone currency recovered from the day’s lows as U.S. equities recouped some of their losses, prompting short-covering in the euro and pushing it above $1.23.
The 25-day rolling correlation between euro/dollar and the S&P 500 remained at a solid 59 percent on Tuesday, making the currency one of the proxies for risk appetite.
Overall, traders said there were more euro sellers than buyers as euro zone bank woes returned to the fore after French bank Credit Agricole (CAGR.PA) pushed back profit targets for its struggling Greek unit Emporiki (CBGr.AT) on Tuesday and said it will take a 400 million euro ($536.7 million) write-down as Greece fights its debt load. [ID:nLDE65L0NB]
A ratings downgrade of French bank BNP Paribas by Fitch and S&P’s announcement on Monday that it had raised estimates for loan losses for Spain’s banking sector continued to weigh on the euro [ID:nN21250262] and [ID:nLDE65K1TE], analysts said.
“The Credit Agricole, BNP news has all brought back into the limelight the likelihood of structural problems in the euro zone,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington, D.C.
Market participants said the euro would face more losses, but technical analysts said near-term support was seen at $1.2253, a 38.2 percent Fibonacci retracement of the rise from a four-year low around $1.1875 on June 7 to Monday’s high.
In other currencies, the Swiss franc extended gains to an all-time high against the euro after the Swiss central bank’s vice chairman said the bank would not intervene in markets for now. [ID:nLDE65L1LC].
The euro fell to a low of 1.3588 francs EURCHF=EBS on the EBS platform, with options barriers at both 1.3650 and 1.3600 giving way.
Sterling, meanwhile, fell to a session low against the dollar GBP= but then recovered to trade 0.7 percent higher on the day at $1.4840, as investors reacted positively to UK Finance Minister George Osborne’s first budget. [ID:nLAC005736].
“Clearly, one of the main drivers is the pound. Once the pound took off, that pushed euro/sterling lower, although that was not enough to pressure euro/dollar as the latter is moving in tandem with equities,” said Scotia’s Butler.
“Gains in the pound were mostly positioning. Markets were looking for stops above $1.4680 that helped cable a lot.”
(Additional reporting by Nick Olivari; Editing by Andrew Hay)
From CountingPips.com
By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2250 level and was capped around the $1.2355 level. European sovereign debt concerns were back at the forefront today and these led to a weaker common currency. European Union Economic and Monetary Affairs Commissioner Rehn reported “Contrary to what some people argue, Europe is not suffocating growth by this strategy of fiscal consolidation. What we are doing is putting our fiscal houses in order in a gradual, differentiated way: faster where the doubts about fiscal sustainability have been biggest, and slower elsewhere.” There is talk that the U.S. and Europe are at odds over a coordinated economic policy. The former is said to favour higher levels of deficit spending to stimulate economic growth while the latter is said to support reduced fiscal spending and would be comfortable with reduced economic output. The European Union is currently evaluating sanctions for “inadequate debt trajectory” and may consider a tax on bond issues by highly-indebted countries. Eurogroup Chairman Juncker reported the economic recovery “remains fragile and loaded with risks.” The common currency’s standing in many central banks’ reserve portfolios is diminishing, a reflection of the currency’s recent volatility and the eurozone’s significant debt woes. German Chancellor Merkel reiterested Germany wants a stable euro and an independent European Central Bank. European Central Bank member Ordonez said Bank of Spain will publish banks’ stress test results as soon as possible. Data released in the eurozone today saw the EMU-16 April current account print at -€5.1 billion, down from the revised prior reading of +€1.5 billion, while EMU-16 June consumer confidence improved to -17. German data saw the June Ifo business climate indicator improve to 101.8 while the expectations sub-index receded to 102.4. In U.S. news, May existing home sales tumbled 2.2% m/m from an upwardly revised 8.0% in April to an annualized 5.66 million units, a surprise decrease. The April house price index climbed 0.8% and the June Richmond Fed manufacturing index fell back to +23 from the prior reading of +26. Most dealers believe the Federal Open Market Committee will keep interest its federal funds rate target unchanged at 0.25% tomorrow when its monetary policy decision is announced. The Fed may also retain its “extended period” rhetoric to describe the ongoing accommodation of monetary policy. Euro offers are cited around the US$ 1.2570 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.50 level and was capped around the ¥91.10 level. Traders pushed the yen higher across the board, one day after the yen came off following China’s announcement that it would be liberalizing its yuan exchange rate policy. Moody’s today affirmed its AA2 rating on Japan and maintained its stable outlook on the country. Yields on 10-year Japanese government bonds fell to 1.185%, their lowest level since 5 January 2009. There is some speculation the government plans to nearly double its growth projection for the current fiscal year to 2.6% following January’s estimate of 1.4%. Notably, Japan’s economy contracted 2.0% during its last fiscal year and 3.7% the preceding fiscal year. The government is expected to release new growth estimates as early as tomorrow. BoJ will soon release its June quarterly survey of consumer sentiment and it is expected to evidence a fifth consecutive quarter of improved confidence. Also, big firms are expected to expand capital spending by 4.9% this fiscal year. Data released in Japan overnight saw May supermarket sales off 5.3% y/y. The Nikkei 225 stock index lost 1.22% to close at ¥10,112.89. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥111.05 level and was capped around the ¥112.45 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥134.75 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥82.20 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8130 in the over-the-counter market, up from CNY 6.7969. Traders booked profits on previous short dollar positions after China’s announcement that it would end its two-year U.S. dollar peg ahead of this week’s Group of Twenty summit in Toronto. People’s Bank of China noted it will prevent “excessive” exchange rate movements. Today’s CNY gains were the largest since July 2005 when China revalued the yuan. Notably, the twelve-month non-deliverable yuan forward rose 1.1% to 6.6425 and this implies traders are speculating on a 2.3% yuan appreciation. People’s Bank of China reported a stronger yuan will help curb inflation and focus investment on service industries from export manufacturing industries. Most dealers expect the appreciation will be relatively gradual with some forecasts calling for about a 4-5% appreciation this year and around a similar amount next year. During the past two years, Chinese monetary authorities bought dollars to prevent the yuan from strengthening too much. The CNY appreciation some 21% during the three years after China introduced its managed float against a basket of currencies in July 2005. The yuan has jumped some 16% vis-à-vis the euro this year and that may temper the yuan’s upside. PBoC is estimated to have accumulated some US$ 2.4 trillion in foreign reserves while intervening in the currency markets. May industrial profits data will be released on 24 June.
£
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4855 level and was supported around the US$ 1.4685 level. Chancellor of the Exchequer Osborne announced the U.K. will raise more than £2 billion per year by taxing banks that have risky balance sheets. Both Germany and France are expected to follow suit with a similar levy. Osborne’s Budget was presented today and the government is now forecasting economic growth of about 2.3% in 2011. Also, the U.K. value-added tax was increased to 20% from 17.5%, a policy shift expected to add an additional £13 billion per year in revenue. Cable bids are cited around the US$ 1.4620 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8275 level and was capped around the £0.8365 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1035 level and was capped around the CHF 1.1120 level. Data released in Switzerland today saw the May trade balance decline sharply to CHF 820 million from the upwardly-revised April total of CHF 2.06 billion. This decline reflects the impact of the strong franc and the limited success Swiss National Bank has had in blunting the impact of the stronger franc through euro-buying intervention. SNB member Jordan said deflation risks have largely gone away and said there is currently no need for intervention. Swiss National Bank yesterday reported that its foreign currency investments rose to CHF 239 billion in May from CHF 153.6 billion in April, indicative of the significant amount of franc-selling intervention the central bank has been conducting to protect the Swiss export sector. U.S. dollar offers are cited around the CHF 1.1470 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3585 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6295 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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SEOUL (Dow Jones)–The South Korean won was lower late Tuesday as an unexpected fall in the yuan and concerns of further limits on foreign exchange forward trading weighed.
Sentiment for Asian currencies in general got a lift early in the day after China lowered the dollar-yuan central parity to CNY6.7980 from Monday’s CNY6.8275, setting the stage for the yuan to continue to rise after a strong finish Monday. But the Chinese currency reversed course and weakened, with traders reporting heavy dollar buying by several Chinese banks. At 0543 GMT, the dollar was trading at CNY6.8200 in the over-the-counter market.
“Still, China did make a move. And I think it’s appropriate to think that the latest move indicates China will allow its currency to appreciate, albeit gradually,” which will likely help the won, said a foreign bank trader.
With the recent breach of the key KRW1,190 support, many expect the dollar to resume its downtrend against the won in tandem with a modest economic recovery in Asia’s fourth-largest economy.
“Some will likely be biased to enter dollar-shorts in the mid-to-upper-KRW1,180s area,” on any rebound in the dollar, said a local bank trader.
Comments from a senior finance ministry official that the government aims to gradually reduce the ceiling on foreign exchange forward transactions by foreign banks operating in the country to match that for local banks also weighed on the won as this could mean tighter dollar liquidity in the system.
Cross currency swap rates fell following the news, with the one-year swap rate down at 1.175% late in Asia compared with 1.275% Monday. A lower cross currency swap rate means it is more expensive to borrow dollars in exchange for the won.
The shock from a reduction in forward transaction limits for foreign banks probably won’t be as large as when the government earlier this month unveiled comprehensive measures to ease the adverse impact of rapid capital flows on the local economy, said Woori Futures analyst Byeon Ji-young.
Domestic treasury bonds ended mixed after coming off intraday lows on bargain hunting following recent sharp falls. September futures ended down six ticks after losing as much as 20 ticks intraday.
Bonds initially fell early in the day on concerns that further limits on foreign exchange forward trading could eat away at foreign appetite for bonds, which is already weak amid lingering rate hike fears.
A local securities firm trader said the bond market is turning bearish, adding that the three-year yield will likely hit the 4.00% level.
-By Min-Jeong Lee, Dow Jones Newswires; 822-3700-1908; min-jeong.lee@dowjones.com
Forex Pros – The pound rose against the U.S. dollar on Tuesday, clawing back up from a 3-day low as the U.K. chancellor of the exchequer, George Osborne, was set to unveil an emergency austerity budget.
GBP/USD gained 0.04% to hit 1.4764 during late Asian trade, after rising from 1.4724, the pair’s lowest since last Thursday.
Cable was likely to find support at 1.4645, the low of June 17, and resistance at 1.5147, the high of May 6.
In the budget, Osborne will unveil a USD 30 billion package of tax hikes and spending cuts aimed at slashing the U.K. budget deficit, The Daily Telegraph reported. He is expected to strip millions of middle-income families of child-related benefits and target the wages of public sector workers, according to the British paper.
Sterling slid versus the euro, meanwhile, with EUR/GBP gaining 0.07% to reach 0.8349.
Later in the day, an industry group will release key data on existing U.S. home sales, a leading indicator of economic health.
LIMA (Dow Jones)–The Central Reserve Bank of Peru intervened Monday in the foreign-exchange market to buy $152 million.
The central bank had intervened on Friday to buy $73 million. The central bank intervenes to smooth out volatility in the exchange market.
On Monday, the sol ended slightly stronger, at PEN2.827 per dollar. The sol ended the previous session at PEN2.829 per U.S. dollar.
-Robert Kozak, Dow Jones Newswires; 511-99927 7269; peru@dowjones.com
* Dollar index hits 1-month low; eyes on 85 area
* Swiss franc hits new record high vs euro
* Yuan jumps to 1-month high vs dollar in NDFs (Adds details, prices, changes byline)
By Wanfeng Zhou and Steven C. Johnson
NEW YORK, June 18 (Reuters) – The euro hovered near a three-week high against the dollar on Friday and headed for its best weekly gain in over a year as European leaders said they would publish details about the health of European banks.
With markets a bit less anxious about Spain’s public finances after the country attracted buyers for a debt auction this week, some analysts said the stress test results could boost trust in Europe’s banking system.
But others cautioned that signs of trouble in the sector could put the brakes on euro gains snapping a rally that lifted the currency some 2 percent against the dollar this week, its best weekly performance since May 2009.
Bank stress tests “could be quite significant if they in fact show that significant capital needs to be raised by some of the major European banks,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. “The euro zone is by no means out of the woods.”
After hitting a three-week high above $1.24 Thursday, the euro retreated to $1.2363 EUR=, down 0.1 percent on the day. It was still rooted in a short-term uptrend that began after hitting $1.1876 last week, its worst level since 2006. the currency was 0.4 percent weaker at 112.21 yen EURJPY= while the dollar was off 0.2 percent at 90.79 yen JPY=.
Anxiety about the fiscal health of euro zone countries has eased a bit over the last week and encouraged investors to unwind bets against the single currency.
“We’re going to see whether the euro is going to sustain these gains and press on toward $1.25,” Dolan said. “But if we see a move back below $1.2340-50, it looks like we might see some end-of-week profit-taking.”
BNP Paribas strategists see the euro’s corrective rebound running out of steam near $1.2525, saying data suggest euro gains are “not backed by real money investment flows.”
Analysts said already light trading activity Friday was expected to dissipate further shortly after 2 p.m. when a World Cup match between England and Algeria kicks off.
SWISS, CHINESE CURRENCIES GAIN
The euro slid to a record low EURCHF= at 1.3718 Swiss francs, according to Reuters data, while the dollar hit a one-month low of 1.1081 francs CHF=.
The franc gained after Switzerland’s central bank on Thursday backed away from a pledge to fight currency strength and said deflation risks have receded. [ID:nLDE65E1W2]
The dollar index .DXY was flat at 85.737, after falling to a one-month low at 85.453. Technical analysts said it looked vulnerable after breaking through support at 85.85, with the next key level seen in the 85.13 area, its May 21 low.
The Chinese yuan rose to a one-month high against the U.S. dollar in offshore forwards as investors bet China may eventually cave in to growing pressure from the U.S. Congress to let the yuan rise in value. [ID:nTOE65H05T]
Benchmark one-year non-deliverable forwards CNY1YNDFOR= fell as far 6.6780. That implied investors were betting on a 2.2 percent rise in the yuan against the U.S. dollar over the next year, up from bets of a 1.3 percent gain on Thursday.
But Brown Brothers Harriman strategist Marc Chandler said Washington likely “lacks the leverage to get China to do something that it does not want to do.” See analysis [ID:nN17253187].
After the 2007-2009 financial crisis and the current European sovereign debt crisis, China can argue “it is a distraction to focus on the yuan,” Chandler said.
(Additional reporting by Tamawa Desai in London; Editing by )
